By Tiernan Ray

Shares of Microsoft (MSFT) are up a penny at $40.34, after Jefferies & Co.’s Ross MacMillan reiterated a Buy rating on the shares, and raised his price target to $47 from $42, writing that the expected release of a version of Microsoft Office for Apple’s (AAPL) iPad could add $2 to $4 per share in value to Microsoft’s stock.

“We think a well executed touch-optimized native version of Office for iPad, available only through an O365 subscription, could prove popular with consumers,” writes MacMillan.

MacMillan starts from the observation that many consumers in a survey of more than 500 people that he commissioned have said they would pay for Office on a tablet:

Most consumers view their tablet as a secondary compute device, supporting the thesis that a O365 sub for multiple devices is attractive. Consumers are also very interested in a touch optimized version of Office for iPad and a higher than expected 23% said they would be willing to pay $100 a year to get access to this as part of a multi-device plan.

MacMillan notes that the consumer version of Office has not generally been as valuable to the company as sales to companies. But that can change as Office365, the hosted, subscription-based version that would presumably encapsulate an iPad version, gains traction

The Consumer segment has always been less important for Office relative to the Enterprise and the SMB segment. Consumer revenue within the old Microsoft Business Division (where over >90% of revenue came from Office) was consistently a small and declining part of the overall business (see chart 4). For example, Consumer Office revenue in FY13 was only 15% of Microsoft Business Division revenue.We calculate that Consumer Office averaged $4.2B of revenue over the last 5 years and that recently it had started to decline below $4B as a result of weakening consumer PC units and a slightly weaker PC attach rate (see chart 5).Office 365 is a subscription-based cloud service that provides access to software services based on the Office platform. Office 365 was launched in 2011, but only with the release of Office 2013 did Microsoft begin to offer broader plans to address all segments of the market (enterprise, SMB and consumer) with the service [...] Our initial analysis of the shift of a consumer to Office 365 suggested significant value opportunity. We suggested that one of the big hurdles Microsoft would need to cross is the relatively low historical rate of Office attach to consumer PCs. However, with the introduction of 5-device support under a single subscription, we thought that the company had taken an important step toward improving attach. Office for consumer is a set of personal productivity products that are increasingly coupled with cloud services. Office is offered both as a single PC software download (Office 2013) and as a subscription service (Office 365). Office 2013 – includes Word, Excel, PowerPoint and OneNote in the base Home and Student Version. Higher end SKUs may include Outlook, Publisher and Access. Importantly Office 2013 can only be installed on a single PC or Mac. Office 365 – includes all applications (including Outlook, Publisher and Access) as well as smartphone access, online versions of Office, Offline and Online storage and Skype minutes. Our prior analysis of the shift of a consumer to Office 365 suggested a significant value opportunity for Microsoft if it could convince customers to shift. We highlighted the fact that we thought it would be incrementally more attractive if Office was supported natively on iOS/ the iPad given the increase unit share of iPads relative to PCs. Consumer Office 365 has had a strong start. Microsoft has highlighted that Consumer Office 365 was one of the fastest growing consumer products, albeit with transition from an existing user population (see chart 8). Microsoft highlights that Consumer Office subscriptions now number 3.5M and are growing rapidly. We believe Consumer Office 365 could increase significantly if Office is offered natively on tablets and specifically the iPad.

MacMillan then plots potential revenue from an Office for iPad assuming an installed base of almost 200 million iPads at the end of last year, and assuming varying “attach rates” — the rate at which people will buy a copy with each iPad purchase — of 15% to 32%, and assuming that “iPad unit shipments increase to 95M by CY16.”

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There are 5 comments

MARCH 21, 2014 1:10 P.M.

TruthSeeker wrote:

So why would anyone want to run a terrific software package like Microsoft Office on one of apple's wildly overpriced underpowered tablets, when they can run it on a real full blown computer/tablet like Surface Pro2 or HP hybrids for less money? They wouldn't. Microsoft's price is rising because people are realizing that the iPad is a severly limited junior computer, and the shift is on to one device that will do both. And that certainly isn't an ipad or even an android tablet. People who know technology have seen this coming for a long time. There are over 1 million real software programs (not dinky apps) that need to run on a real computer, and to get real work done a real computer is what you need.

MARCH 21, 2014 1:19 P.M.

tamoem wrote:

Apple products will still sell, even though Apple has fallen behind the rest of the industry. Good for Microsoft to open up its revenue stream for these users. Shows Microsoft knows that growing revenue is important and serving all customers will do that; something that Tim Cook doesn't have a clue about, he's lost in the past apple success plan. I'll be happy the day they fire him and bring a real innovator in to run the company.

MARCH 21, 2014 3:56 P.M.

AerobicGuy wrote:

Microsoft made a ton of money by porting apps to the Mac starting in the 1980's- and continues to do so. And they realize that Apple users (whatever the platform) will pay for quality and great products. And this is a great end around Google. Good thinking Microsoft. They weren't doing that well with the Surface RT and Surface Pro anyway. And for Apple haters, enjoy your science project Androids and Windows machines.

MARCH 21, 2014 3:57 P.M.

@ TruthSeeker wrote:

Oh I dunno. Maybe because the Surface Pro is real ugly like you. That'll do it you know. Why don't you try out the self help section on Amazon. I'm sure they've got books for retards with negativity issues. What about personal hygiene? Are you keeping up there? Or are you that absorbed by Microsoft? If you're not brushing your teeth and washing give it up. Hmm. Because everything about you stinks.

MARCH 21, 2014 4:21 P.M.

muzzledad wrote:

Bottom line - Microsoft Office wants to be the best experience on whatever device the consumer chooses. Said differently, the Windows' division job is to compete on the O/S, hardware, platform business. Office division should serve as broad an audience as possible.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.